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Location still matters for digital innovation

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Post-pandemic, the concept of corporate location has never been more fluid. Some firms, though not many, have gone fully and permanently remote. Others are downsizing their downtown footprints and looking at smaller cities or suburban nodes of mixed-use real estate that appeal to how hybrid employees want to live and work.

The November 2022 EY Future Workplace survey of corporate leaders found that office life is not yet a relic of the past. Some 40% of respondents said their company is leasing or considering leasing in a major market, while 41% said their company is leasing or considering leasing in a suburban market.

Along those lines, the new Digital Economy Report from financial technology firm Tipalti ranks the U.S. states with the most promising digital economies.

The rankings weighed factors such as number of tech job postings, the size of total tech workforce, the tech sector’s economic impact, the number of tech firms, U.S. Census Bureau population data, and median tech wages. Tipalti ranked Virginia, Massachusetts, Colorado, Maryland, and Washington the top five state-level digital economies.

These trends align with MIT Sloan research, which has shown that geography and proximity still play a major role in digital innovation and that encouraging employees to gather in person at least some of the time has clear benefits to the organization.

Here’s more on why — and where — innovation happens, according to the research.

Study quantifies the impact of face-to-face meetings on innovation

Does working in an office help boost innovation and creativity? Research from MIT economics professor David Atkin indicates that it does.

Using geolocation data from cellphones, maps of Silicon Valley buildings, and patent filings, Atkin and his co-authors found that face-to-face meetings significantly increased patent citations between firms, which the researchers used as “an observable proxy for knowledge flows.”

The authors were able to predict that:

  • Eliminating a quarter of face-to-face meetings in Silicon Valley would reduce the number of patent citations by approximately 8.0%.
  • If 25% of office workers in the sample worked from home instead of in the office, face-to-face meetings would fall by 17.0% and patent citations by 5.2%.
  • If half the office workers in the sample worked from home, face-to-face meetings would fall by 35.1% and citations by 11.8%.

But don’t cancel WFH just yet. The authors write that the effects on innovation could be mitigated “if permanent work-from-homers make conscious efforts to meet more people.”

Leveraging the human aspects of innovation

Innovation continues to require an in-person component, even for global companies, according toMIT Sloan associate dean of innovation and inclusion, and Queensland University of Technology’s Rob Perrons. In a webinar, the pair offered insights for entrepreneurial firms trying to innovate amid challenging times.

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At its heart, innovation is about people sharing ideas, coming together, and “having these little bright spark moments,” said Perrons. That’s why some companies are “politely insisting that people get back to the office so they can get back to bumping into each other at the watercooler,” he said.

For hybrid employees, Perrons recommended things like regular offsites or coffee dates to re-create those watercooler interactions.

The challenge for tomorrow is leveraging digital tools while still creating opportunities for the human aspect of innovation, Perrons said: “Managing that tension and that balance, that is going to be an important part of the innovation enterprise moving forward.”

Tech hubs are expensive. Other cities offer alternatives

The most technologically productive places in the country — among them Silicon Valley, Seattle, and New York — have some of the highest labor and real estate costs. Is the trade-off worth it for companies seeking to establish or expand their location?

A new research paper says yes — for the most part. MIT professorsand Jonathan Gruber and the University of California, Berkeley’s Enrico Moretti found that the productivity gains from a density of scientific talent generally outweigh the additional costs by a factor of six.

That is, unless your firm is considering San Francisco. The researchers found that there are diminishing returns in locations like the Bay Area, Boston, and Honolulu, among others, where the increase in research and development costs counterbalances productivity gains.

In related work, Gruber and Johnson identified 102 plausible next-generation tech hubs in often-overlooked cities such as Rochester and Syracuse in New York, and Pittsburgh, in their 2019 book, “Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream.”

These communities have large populations, highly educated workforces, and low costs of living. Federal R&D investment in these hubs could close income and opportunity gaps, the authors argued — all while fueling innovation.

“It’s in the public interest to have a lot of technological innovation. Businesses tend to develop close to where the innovation takes place,” Johnson said in an interview. “And that closeness is not necessarily at the country level; it’s at the city level and within cities.”

Innovation requires a close-knit ecosystem of key stakeholders

MIT Sloan researchers have identified five key stakeholders in a thriving innovation ecosystem: research institutions, entrepreneurs, corporations, investors, and governments. These entities are linked by a strong social fabric of mutual interest, complementary needs and resources, and trust.

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Innovation-driven entrepreneurs are a key component in such ecosystems, according to Fiona Murray, who is also co-director of the MIT Innovation Initiative, and senior lecturer“They’re producing the companies of the future,” Budden said. “You can’t just have today’s companies [in an ecosystem]; you need to have those leaders who are going to produce future companies.”

Writing in MIT Sloan Management Review, Budden and Murray made the case that companies committed to innovation need to take “a systematic approach to identifying and securing competitive advantage” from working within an ecosystem.

It’s not enough to simply be close to an innovation hub and pop in from time to time, Budden said in a subsequent webinar, where he cited “ineffective external engagement” as a common mistake companies make when trying to innovate.

To best leverage these ecosystems, corporate leaders need to think through what they’re strategically trying to achieve. Once leaders have that strategic vision for innovation articulated, they can then turn their attention toward who they want to meet and who can help them set up those meetings.

Innovation-driven entrepreneurship will be more distributed

Post-pandemic, the innovation ecosystem model will hold, though in a slightly different way, Murray and Budden said in a June 2021 webinar.

Mirroring what’s happening with the return to the office, innovation ecosystems will support both in-person and geographically distributed teams, and leverage both digital and physical forms of engagement. “Smaller-scale ecosystems supported by digital collaboration technologies are going to thrive and be very vibrant,” Murray said.

Innovation-driven entrepreneurship will be more distributed, Budden agreed. “There is a shift away from some of the big cities,” he said. “There is an opportunity for other places to pick up some of the globally mobile talent who can work in cities in the American heartland, up in North England, or in various parts of Latin America.”

Read next: Hybrid work is here to stay. Here are 7 ways manage your workforce

For more info Tracy Mayor Senior Associate Director, Editorial (617) 253-0065